What Shakespeare said about a rose smelling as sweet under any name is surprisingly not applicable to the world of consumer products and corporate brands. Your refrigerator, your washing machine, your television and many of other consumer appliances may, in fact, be manufactured by someone you’ve never heard of rather than by “the name you know” that is affixed to it.
The advent of the twenty-first century global economy has changed the way things operate. Companies now drift with increasing frequency from their original set of core offering in order to remain competitive into fields you could never imagine them entering. Innovation and the need to diversify have them spinning off in all kinds of directions. At the same time they sell off once tried and true divisions that are less profitable than they once were.
Amazon.com started out as an online bookseller that many business analysts had a hard time believing would actually be profitable. They ought to be eating their words as it has evolved into a one stop online shop where you can buy just about anything and now owns the Washington Post to boot.
Then there’s Google which started out as a search engine and grew, as it diversified, into one of the world’s largest companies. It’s so dominant that its name, in verb form, is now synonymous for looking up something on like much like the word “Kleenex,” a brand name, means tissue. No one ever says “I’m going to sneeze. Please pass me the box of Scott’s.”
What you may have missed is that Google is restructuring. It’s now involved in some many different parts of the Internet, from content development to breakthrough technologies that it has been forced to create a management company to oversee it all.
Google didn’t invent this practice – it may however take it to heights hardly seen before. In reality the method is tried and true; billionaire Warren Buffet, the noted “Oracle of Omaha” has a run a myriad of companies with diverse interests through Berkshire Hathaway, which manages them all. The advantages are many: increased autonomy for the individual companies, greater protection against downturns in the market and the economy and, most importantly, stability for the investors putting their hard money into his holdings. It’s win-win all around.
As good as corporate evolution is, however, it is not without its drawbacks and its bad actors, who take stockholders and consumers on a rollercoaster rides that starts in a bad place only to end up in a worse one.
The world was shocked when Nokia, probably at the time the world’s most prolific cell phone manufacturer, exited the marketplace. It went out of the phone business but held on to its technology by keeping its many patents – with the eye to making them the source of future revenue.
Under the new structure Nokia would, instead of leasing or licensing the rights to its patented technology to other manufacturers as it did when it too made phones they evolved into what is basically a patent privateer: setting rates for use at unreasonable levels to extract as much money as possible from competitors while eschewing the need for capital expenses; think of it as a blend, part patent troll, part merchant bank.
This might be good for Nokia stockholders and executives but it is bad for the market, for consumers, and for innovation. Apple and Samsung, to name to industry leaders in the cell phone space, regularly license each other’s technologies and compensate each other through reasonable royalties. They understand the market value of such an arrangement, mutually beneficial access to intellectual property of one firm that doesn’t necessarily dull its competitive edge that is, on the whole, good for the people buying cellular phones.
Now Nokia’s talking about getting back into manufacturing. Whether the new plan didn’t pan out or it’s just a case of a corporate anxiety attack isn’t clear but they are going to likely find it harder to move back it than it was to pull out. Their exploitation of the companies waiting to use their patents has no doubt left hard feelings that will ultimately lead to retribution by competitors when the chance arises; that’s probably as it should be except for the damage it will do to consumers by raising prices for new technology across the board.
It’s one thing to help a business evolve in order for it to remain competitive and to innovate; change or die is still the rule. It’s another thing entirely to flip-flop business strategies as Nokia seems to be doing, gouge unreasonable royalties from its own prior investments in IP and to expect business to go on as before.
Peter Roff is a former political analyst for United Press International who now provides commentary on public policy issues for One America News.